Electricity going up by 13.8%
Nersa’s decision to grant Eskom much lower tariff increases than it asked for will leave the embattled utility with a R102bn revenue shortfall.
Eskom, which economists and ratings agencies have described as the single biggest risk to SA’s economy, said it was keenly awaiting the National Energy Regulator of SA’s reasoning for allowing it to raise prices 9.41% in 2019, 8.1% in 2020 and 5.22% in 2021.
Nersa’s decision to grant Eskom much lower tariff increases than it asked for will leave the embattled utility with a R102bn revenue shortfall.
Eskom, which economists and ratings agencies have described as the single biggest risk to SA’s economy, said it was keenly awaiting the National Energy Regulator of SA’s reasoning for allowing it to raise prices 9.41% in 2019, 8.1% in 2020 and 5.22% in 2021.
With a previously approved increase of 4.4%, which comes into effect in April, the rise for 2019 will effectively be 13.81%.
While that is less than what the power utility had asked for, it is more than twice the upper limit of the Reserve Bank’s 3%6% inflation target range, and is likely to raise the ire of the monetary policy committee, which is due to decide on interest rates later in March.
Eskom wanted increases of 15% to 17% for the next three years, which it said were necessary for its sustainability.
Eskom, which was the epicentre of corruption and state capture during former president Jacob Zuma’s almost decade-long administration, is in the grips of an operational and financial crisis.
Electricity sales are in decline as its exorbitant increases drive away paying customers, and income from operations is not enough to cover the cost of servicing its R420bn debt.
More than a year after the appointment of a new board, its financial and operational performance continued to deteriorate, culminating in the return of load-shedding that has paralysed industry and led economists to downgrade their growth forecasts for 2019.
Independent energy analyst Ted Blom said the tariff hike could not be justified and effectively rewarded Eskom for its corruption and inefficiency.
“It will kill jobs and the economy,” Blom said.
Nersa chair Jacob Modise said the regulator’s challenge was to regulate the energy industry in a manner that balanced the interests of energy producers and customers.
He denied there had been any political interference.
“It’s when we do our work properly that we get criticised on both sides, then we know we are achieving a balance,” Modise said.
“We are satisfied that it was in line with our methodology and the outcome was a reasonable one.”
Eskom CFO Calib Cassim said Eskom’s application was fully compliant and was underpinned by the need to ensure its financial sustainability.
Energy Intensive User Group of Southern Africa spokesperson Shaun Nel said the organisation’s members would be relieved that the requested 15% and above was not granted.
“To be fair, Nersa has to balance some of the risk Eskom has from a financial perspective,” he said.
Nel said the tariff hike came with an implicit caveat that Eskom would be turned around – and quickly.
In his budget speech in February, finance minister Tito Mboweni set aside R69bn for Eskom over the next three years, which could rise to R150bn over a decade, to help it service its debt, giving it room to use its resources to fund operations.
The aid is conditional on it meeting strict conditions, including its separation into different divisions.
Nersa’s decision increases pressure to accelerate the unbundling process to deal with the debt situation as effectively as possible, Eurasia Group director for Africa Darias Jonker said in London.
“However, because of this financial pressure, job cuts will look more and more necessary and this will, in turn, delay negotiations with the trade unions,” he said, meaning restructuring would only start in 12 to 18 months.
‘Because of this pressure, job cuts will look more and more necessary’ Darias Jonker
EURASIA GROUP, AFRICA DIRECTOR